Mall Maestros

Westfield Corporation posted CY16 funds from operations of US$700 million, or 33.7 cents per security, in line with Ord Minnett’s forecast of US$697 million.


Guidance for CY17 funds from operation was US33.8–34.0 cents per security (OMLe US34.1 cents) or around 3–3.5% growth on a constant-currency basis. DPS guidance is US25.5 cents, up 0.4 cents on CY16.


The company’s active developments – Westfield has a pipeline of around US$9.5 billion – are largely on track and will be highly accretive, further improving portfolio quality. Debt funding of US$3.5 billion in active redevelopments will drive material NTA growth – we have the Australian-dollar NTA rising from $7.20 to around $8.80 over the next two years.


Developments will also drive growth in funds from operations from the second half of CY17 with target yields on cost of 7% or more. In addition to the active developments, Westfield also has a healthy medium-term retail and apartment pipeline.


NTA growth is coming through but the market is a touch more skeptical on the rebound in funds from operations. We see strong growth in FY18 and FY19. It is possible stabilisation of some developments may delay some of the FFO snapback.


Westfield may look to strengthen its balance sheet via asset sales or joint venturing another asset as a source of funding which may erode some of the growth. However, we still see a strong medium-term growth profile for funds from operations.


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